What authorizes a Contractor to charge the increased rate change on an active contract causing insufficient funds to complete the work?
1. Since this is a Cost Plus Fixed Fee (CPFF) contract, the clause at FAR 52.232-20, Limitation of Cost, and/or the clause at FAR 52.232-22, Limitation of Funds, should have been included in the basic contact. These clauses require the contractor to notify the contracting officer when costs are expected to exceed the funds obligated on the contract. The contractor is not obligated to continue performance or incur costs beyond the amount obligated on the contract. These clauses also limit the Government reimbursement of costs incurred in excess of the estimated cost specified in the Schedule. When faced with an overrun, the Government may fund the overrun or terminate the contract. Having said that, the boards of contract appeals and the courts have occasionally permitted a contractor to recover an overrun attributable to an unanticipated increase in overhead rates.
2. The contractor must also comply with FAR Subpart 42.7 and FAR Clause 52.216-7 to establish billing rates and final rates for indirect costs. The contractor must maintain cumulative allowable costs by contract to assure that the cumulative amounts billed do not exceed the total estimated cost and/or the current contract funding levels. Furthermore, if the increased burden rates are a result of severance pay or early retirement incentive plans for the personnel layoffs, those costs are only allowable subject to the rules in FAR 31.205-6.
3. My recommendation is for the contracting officer to contact the appropriate Defense Contract Management Agency (DCMA) and/or Defense Contract Audit Agency (DCAA) to discuss the issue of increased rates. In addition, whenever, you have reason to believe the cost of a contract will exceed the estimated funding available, you should consult and seek the advice of your financial manager and legal counsel. In addition, the contractor's cost controls should be include in any Past Performance Information Retrieval System (PPIRS) or Contractor Performance Assessment Reporting System (CPARS) ratings.